2011 (8) TMI 779 - HC - Income Tax

Changeability - Is power Subsidy a Capital Receipt -In view of CIT v. P.J. Chemicals (1994 - TMI - 5455 - SUPREME Court), Subsidies given by the Government as incentives to the industrial undertakings in backward areas are capital in nature and cannot be taxed.

Summary

Issues:
1. Interpretation of power subsidy as a capital receipt under Section 28(iv) of the IT Act, 1961.

Analysis:
The judgment by the CHATTISGARH HIGH COURT revolves around the interpretation of power subsidy received by the assessee as a capital receipt under Section 28(iv) of the IT Act, 1961. The Assessing Officer initially treated the power and interest subsidies as revenue receipts, adding them to the total income of the assessee. However, the CIT (A) referred to the decision in Gadia Wires v. CIT, holding that such subsidies are capital receipts. This decision was upheld by the ITAT, citing the Supreme Court ruling in Commissioner of Income Tax v. P.J. Chemicals Ltd., which stated that subsidies provided by the Government to industrial undertakings in backward areas are of a capital nature and not taxable as revenue expenditure.

The ITAT, in alignment with the Supreme Court decision, concluded that no referable question existed as the Tribunal had followed established legal principles. The court further emphasized that the subsequent decision in Commissioner of Income Tax v. Rajaram Maize Products did not apply to the present case, as the law laid down in P.J. Chemicals Ltd. was already available during the assessment proceedings and subsequent appeals. Therefore, the court dismissed the application, stating that no question of law needed to be addressed in this reference, as the previous decisions were based on sound legal footing and in accordance with the law established by the Supreme Court.

In conclusion, the judgment clarifies the treatment of power subsidies as capital receipts under the IT Act, 1961, based on established legal precedents and Supreme Court rulings. The court's decision highlights the importance of adhering to existing legal principles and precedents in determining the taxability of subsidies received by industrial undertakings.